Digital currency issuance is a widely debated topic in modern finance. The theoretical analysis and strategic pathways for issuing digital currencies are subjects of diverse opinions. This article explores the concept of digital currency from a macroeconomic perspective, analyzes the issuance framework, and discusses strategic choices for digital currency issuance, particularly focusing on central bank digital currencies (CBDCs).
Understanding Digital Currency and Central Bank Digital Currency
Currency and Fiat Currency
The definition of currency has long been a topic of debate. The International Monetary Fund (IMF) approaches the definition and measurement of currency from three macroeconomic perspectives:
First, currency is defined and measured based on financial instruments that perform monetary functions. Currency is an abstract concept manifested through various financial tools such as cash, deposits, foreign exchange, notes, and short-term debt instruments. Key monetary functions include serving as a unit of account, medium of exchange, means of payment, and store of value. Different financial instruments exhibit these functions to varying degrees, described as "moneyness" or liquidity. The IMF categorizes monetary instruments into hierarchical aggregates: M0 (physical currency with the highest liquidity), M1 (M0 plus demand deposits), and M2 (M1 plus time deposits and short-term bonds). Equities and bonds, with weaker monetary properties, are included in broader liquidity measures.
Second, currency is defined by its issuing sectors. Entities that issue monetary instruments—such as central banks (issuing base money), deposit-taking financial institutions (creating deposit money), non-financial corporations (issuing notes and bonds), and non-resident sectors (issuing foreign exchange instruments)—are considered part of the monetary system. Households, non-financial corporations not issuing instruments, and local governments are typically excluded.
Third, currency is measured from the perspective of holding sectors. This approach considers the macroeconomic impact of financial instruments held by all resident sectors except central banks, deposit-taking institutions, and central governments.
Key insights from these definitions include:
- Currency comprises various financial instruments, with cash being just one form.
- The fiat currency issuance system involves multiple entities, including central banks, deposit-taking institutions, and non-financial corporations.
- Each issuer plays a distinct role: central banks issue high-powered money, deposit-taking institutions create deposit money, and non-financial corporations issue less liquid instruments.
Digital Currency and CBDCs
Terms like virtual currency, electronic money, digital currency, and central bank digital currency (CBDC) are often used inconsistently. This article defines them based on the issuing sector and their relationship with fiat currency:
- Virtual Currency: Issued by non-financial corporations and not directly convertible to fiat currency. Examples include coupons, game credits, and loyalty points. Decentralized cryptocurrencies like Bitcoin and Ethereum are considered specialized virtual currencies or crypto-assets.
- Electronic Money: Issued by deposit-taking financial institutions and directly convertible to fiat currency. This includes bank cards, online banking, and third-party payment tools like Alipay and WeChat Pay (due to their strong linkage to deposit money).
- Digital Currency: Broadly defined, it encompasses both virtual and electronic money. Narrowly, it refers only to virtual currencies, including private cryptocurrencies.
- Central Bank Digital Currency (CBDC): A digital form of base money (cash or reserves) issued by the central bank, representing a central bank liability. While reserves are already digital, many countries are researching the digitization of cash.
Critical points to note:
- Different issuers play varied roles in the digital currency ecosystem.
- The "moneyness" of a digital currency depends on its清算 relationship with central bank money.
- The nature of the issuer does not inherently determine monetary strength; theoretically, central banks could provide清算 for virtual currencies without reclassifying their issuers as deposit-taking institutions.
Digital Currency Issuance and Financial Systems
Digital currency issuance involves integrating digital currencies into the fiat monetary system and distributing them according to established rules. This process requires both technological infrastructure and adjustments to economic relationships. Given the associated credit and payment risks, robust financial systems—particularly market access and payment清算 frameworks—are essential.
Market Access Systems
Market access regulations include institutional准入 and instrument准入 rules. Institutional准入 determines which entities can participate in monetary issuance, requiring compliance with legal and supervisory standards to mitigate risks. Instrument准入 defines which digital financial tools qualify as money under a functional regulatory approach.
In today’s credit-based economies, centralized currency issuance is crucial. Central banks must manage digital currency issuers and instruments to ensure system stability. Electronic money is already integrated into the fiat system, with准入 rules for banks, payment institutions, and monetary instruments. Virtual currencies, however, remain largely outside this system due to their limited scope and impact. As cryptocurrencies gain traction, their potential inclusion requires careful study.
Payment and清算 Systems
Payment and清算 infrastructure is vital for digital currency issuance. It encompasses account management, payment tool regulations, anti-money laundering measures, and system oversight. In the fiat system, central banks operate清算 systems for banks and特许 institutions, while banks serve individuals. Virtual currencies typically rely on self-maintained or community-driven systems.
Financial Innovation as the Core of Digital Currency Issuance
Rapid technological advancements are reshaping monetary systems, necessitating innovations in digital currency issuance. The proliferation of decentralized digital currencies challenges central banks’ authority and monetary policy effectiveness. While blockchain technology is important, financial system innovations are even more critical to address market complexities.
Pathways for Innovating Digital Currency Issuance
CBDC issuance is a means to enhance efficiency, reduce costs, and maintain financial stability. Strategic innovation should be approached macroeconomically:
- Broad Digital Currency (Electronic Money): Existing regulations are relatively mature. Focus should be on optimizing清算 processes, leveraging central bank清算 to improve efficiency. Institutions with money-creation capabilities could be broadly classified as deposit-takers, and systemically important players (e.g., large payment providers) might be integrated into the fiat system with direct central bank清算.
- Narrow Digital Currency (Virtual Currency): Most virtual currencies remain small-scale and isolated. Key questions include whether to integrate them into the fiat system, how to regulate them, and whether central banks should provide清算 services—including opening balance sheets to non-financial entities. Decentralized cryptocurrencies, with their growing monetary traits, require proactive management.
- CBDCs: Developing CBDCs involves technological and institutional innovations. Issuing to traditional金融机构 requires清算 system upgrades; issuing to non-financial entities or individuals would revolutionize the central bank–commercial bank binary system, demanding careful feasibility assessment.
In summary, currency issuance hinges on governmental credit. Safety, stability, efficiency, and cost-effectiveness must guide all digital currency initiatives.
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Frequently Asked Questions
What is the difference between virtual currency and electronic money?
Virtual currency, issued by non-financial entities, is not directly convertible to fiat currency and operates in closed environments (e.g., game credits). Electronic money, issued by financial institutions, is fully convertible and part of the formal monetary system.
Why are central banks developing CBDCs?
Central banks aim to enhance payment efficiency, reduce transaction costs, and maintain monetary sovereignty in the digital age. CBDCs offer a secure, state-backed alternative to private digital currencies.
Can cryptocurrencies become part of the fiat system?
Theoretically, yes—if central banks provide清算 services. However, this would require regulatory changes and careful assessment of systemic risks, including monetary policy impacts.
How do digital currencies affect monetary policy?
Integrated digital currencies could improve policy transmission and efficiency. Unregulated ones may undermine control over money supply and interest rates, necessitating adaptive frameworks.
What are the risks of digital currency issuance?
Key risks include cyber threats, financial instability, and regulatory gaps. Robust market access,清算, and supervisory systems are essential to mitigate these.
Is blockchain essential for digital currencies?
Not necessarily. While blockchain enables decentralization, many digital currencies (e.g., electronic money) use centralized systems. Technology choice depends on goals like security, scalability, and governance.